Events

Authors:

• Youchang WU
  University of Vienna

• Rong CUI
  University of Vienna

Using the approach of Brennan, Chordia and Subrahmanyam (1998a, 1998b), we find a significantly negative size effect and turnover effect in the cross-section of Chinese stock returns, together with evidence of short-term return reversal and intermediate-term return momentum. The book-to-market effect, while present in some model specifications, is not robust to changes in sample periods and estimation methods. A hypothetical strategy that shorts 10% of stocks with the lowest forecast risk-adjusted returns and longs 10% of stocks with the highest produces a monthly risk adjusted return of 2.88%. The strong size effect cannot be fully explained by liquidity, endogeneity, or exposures to the Fama-French factors. The positive relation between floating ratio and expected returns, which has been interpreted as evidence of corporate governance effect, may simply capture the negative size effect associated with non-tradable shares.